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New capital requirements will impose considerable adjustments

French banks have taken note of the new rules for calculating the new solvency ratio that the Basel Committee has just presented. Banks will need to have 4.5% in core tier-one capital, plus a 2.5% "capital conservation" buffer, which de facto amounts to a total of 7% in total common equity requirements. In light of the new restrictions set last July in the breakdown of this ratio, this is very significantly above the current Basel II levels. It will require major adjustments by banks in their business models and balance sheets.

French banks are among the most financial solid establishments, as seen in the recent stress tests organised by European banking supervisors. They are thus among those best equipped to adjust to these new prudential rules during the time imparted to them.

Their main concern is that increasing capital requirements has required by the new regulations will place a severe constraint on them that will inevitably hinder the financing of the economy, and, in particular, the volume and cost of credit. This is an issue for the entire European economy, as 80% of its financing is provided by banks, unlike the US economy, which is financed mainly by the markets.

French banks take note of the fact that the "countercyclical" buffer would be left to the discretion of national authorities and could take into account instruments able to absorb losses.

Meanwhile, French banks continue to regret the introduction of a leverage ratio, which has no connection to risk and is therefore unsuited and useless. In these conditions, such a ratio should serve as a mere indicator, at the sole discretion of the national regulator*.

French banks also point out that additional capital requirements, particularly those applying to the "systemic institutions" to which the Basel Committee makes reference, would exacerbate the consequences for the economy. Moreover, such requirements would not be the best way to help prevent and resolve crises. To do so, quality supervision and other measures for preventing and resolving crises are far more effective.

* The "leverage" ratio must therefore come under Pillar 2.


Colette Cova
email : ccova@fbf.fr
Tel : 01 48 00 50 07

Kenza Benqeddi
email : kbenqeddi@fbf.fr
Tel : 01 48 00 50 08

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